Page 1 of 16 Best Buy Reports Fourth Quarter Results Non-GAAP Diluted EPS from Continuing Operations of $1.48 GAAP Diluted EPS from Continuing Operations of $1.47 Annualized Renew Blue Cost Reductions Reach $1.02 billion MINNEAPOLIS, March 3, 2015 -- Best Buy Co., Inc. (NYSE: BBY) today announced results for the fourth quarter (“Q4 FY15”) and year ended January 31, 2015 (“FY15”), as compared to the fourth quarter (“Q4 FY14”) and year ended February 1, 2014 (“FY14”). The company today also announced that on February 13, 2015, it completed the sale of its Five Star business in China, which was classified as held for sale as of January 31, 2015, and is reporting the Five Star results in discontinued operations. All information regarding the company's results pertains to its continuing operations, unless otherwise noted. Q4 FY15 Q4 FY14 FY15 FY14 Revenue (excluding China): Enterprise revenue ($ in millions) $14,209 $14,025 $40,339 $40,611 Domestic segment $12,697 $12,298 $36,055 35,831 International segment $1,512 $1,727 $4,284 $4,780 Enterprise comparable sales % change: Excluding the estimated benefit of installment billing 1,2 1.3% (1.3%) 0.0% (1.0%) Estimated benefit of installment billing 2 0.7% --- 0.5% --- Comparable sales % change 1 2.0% (1.3%) 0.5% (1.0%) Domestic segment comparable sales % change: Excluding the estimated benefit of installment billing 1,2 2.0% (1.2%) 0.5% (0.4%) Estimated benefit of installment billing 2 0.8% --- 0.5% --- Comparable sales % change 1 2.8% (1.2%) 1.0% (0.4%) Comparable online sales % change 1 9.7% 25.8% 16.7% 19.8% International segment comparable sales % change: Comparable sales % change 1 (4.0%) (2.0%) (3.5%) (5.1%) Q4 FY15 Q4 FY14 FY15 FY14 Operating Income: GAAP operating income as a % of revenue 5.7% 3.2% 3.6% 2.8% Non-GAAP operating income as a % of revenue 3 5.8% 4.5% 3.7% 2.9% Diluted Earnings per Share (EPS): GAAP diluted EPS from continuing operations $1.47 $0.85 $3.53 $2.00 Impact of LCD settlements $0.00 $0.02 $0.00 ($0.41) Impact of non-restructuring asset impairments $0.03 $0.12 $0.08 $0.19 Impact of restructuring charges ($0.01) $0.20 $0.01 $0.28 Impact of gain on investments, net ($0.01) $0.00 ($0.02) ($0.04) Benefit of income tax impact of Best Buy Europe sale $0.00 $0.01 $0.00 $0.05 Impact of European legal entity reorganization $0.00 $0.00 ($1.00) $0.00 Non-GAAP diluted EPS from continuing operations 3 $1.48 $1.20 $2.60 $2.07
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Page 1 of 16
Best Buy Reports Fourth Quarter Results
Non-GAAP Diluted EPS from Continuing Operations of $1.48
GAAP Diluted EPS from Continuing Operations of $1.47
Annualized Renew Blue Cost Reductions Reach $1.02 billion
MINNEAPOLIS, March 3, 2015 -- Best Buy Co., Inc. (NYSE: BBY) today announced results for the fourth
quarter (“Q4 FY15”) and year ended January 31, 2015 (“FY15”), as compared to the fourth quarter (“Q4 FY14”)
and year ended February 1, 2014 (“FY14”). The company today also announced that on February 13, 2015, it
completed the sale of its Five Star business in China, which was classified as held for sale as of January 31,
2015, and is reporting the Five Star results in discontinued operations. All information regarding the company's
results pertains to its continuing operations, unless otherwise noted.
Q4 FY15 Q4 FY14 FY15 FY14
Revenue (excluding China):
Enterprise revenue ($ in millions) $14,209 $14,025 $40,339 $40,611
Domestic segment $12,697 $12,298 $36,055 35,831
International segment $1,512 $1,727 $4,284 $4,780
Enterprise comparable sales % change:
Excluding the estimated benefit of installment billing1,2
1.3% (1.3%) 0.0% (1.0%)
Estimated benefit of installment billing2 0.7% --- 0.5% ---
(1) Best Buy’s comparable sales is comprised of revenue at stores, websites and call centers operating for at least 14 full months, as well as revenue related to certain other comparable sales channels. Relocated stores, as well as remodeled, expanded and downsized stores closed more than 14 days, are excluded from the comparable sales calculation until at least 14 full months after reopening. Acquisitions are included in the comparable sales calculation beginning with the first full quarter following the first anniversary of the date of the acquisition. The portion of the calculation of comparable sales attributable to the International segment excludes the effect of fluctuations in foreign currency exchange rates. The calculation of comparable sales excludes the impact of revenue from discontinued operations. The method of calculating comparable sales varies across the retail industry. As a result, Best Buy’s method of calculating comparable sales may not be the same as other retailers’ methods. Comparable online sales are included in Best Buy’s comparable sales calculation.
(2) In April of 2014, Best Buy began offering mobile carrier installment billing plans to its Domestic customers in addition to two-year contract plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As the mix of installment billing plans increases, there is an associated increase in revenue and cost of goods sold, and a decrease in gross profit rate, with gross profit dollars relatively unaffected. The company estimates that its fourth quarter Enterprise comparable sales of 2.0% and Domestic comparable sales of 2.8% include approximately 70 basis points and 80 basis points, respectively, of impact from this classification difference. The impact on our gross profit rate at the Enterprise and Domestic levels for the quarter was immaterial. The company believes that providing information regarding this impact of installment billing and an estimate of the company’s comparable sales absent this impact assists investors in understanding the company’s underlying operating performance in relation to years prior to the introduction of installment billing. (3) The company defines non-GAAP gross profit, non-GAAP SG&A, non-GAAP operating income, non-GAAP net earnings and non-GAAP diluted earnings per share for the periods presented as its gross profit, SG&A, operating income, net earnings and diluted earnings per share for those periods calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”), adjusted to exclude LCD-related legal settlements, restructuring charges, non-restructuring asset impairments, gains on investments, the acceleration of a non-cash tax benefit as a result of reorganizing certain European legal entities and the required tax allocation impact from the sale of the company’s European business. These non-GAAP financial measures provide investors with an understanding of the company’s financial performance adjusted to exclude the effect of the items described above. These non-GAAP financial measures assist investors in making a ready comparison of the company’s financial results for its fiscal quarter ended January 31, 2015, against the company’s results for the respective prior-year periods and against third-party estimates of the company’s financial results for those periods that may not have included the effect of such items. Additionally, management uses these non-GAAP financial measures as an internal measure to analyze trends, allocate resources, and analyze underlying operating performance. These non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, GAAP financial measures and may differ from similar measures used by other companies. Please see the table titled “Reconciliation of Non-GAAP Financial Measures” at the end of this release for more detail. (4) According to The NPD Group’s Weekly Tracking Service as published February 9, 2015, revenue for the CE (Consumer Electronics) industry declined 3.2% during the 13 weeks ended January 31, 2015 compared to the 13 weeks ended February 1, 2014. The CE industry, as defined by The NPD Group, includes TVs, desktop and notebook computers, tablets not including Kindle, digital imaging and other categories. Sales of these products represent approximately 65% of the company’s Domestic revenue. The CE industry, as defined by The NPD Group, does not include mobile phones, gaming, movies, music, appliances or services. Forward-Looking and Cautionary Statements: This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that reflect management’s current views and estimates regarding future market conditions, company performance and financial results, business prospects, new strategies, the competitive environment and other events. You can identify these statements by the fact that they use words such as “anticipate,” “believe,” ”assume,” “estimate,” “expect,” “intend,” “project,” “guidance,” “plan,” “outlook,” and other words and terms of similar meaning. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: macro-economic conditions (including fluctuations in housing prices, oil markets, jobless rates and other indicators impacting consumer spending and confidence), conditions in the industries and categories in which we operate, changes in consumer preferences (including shopping preferences), changes in consumer confidence, consumer spending and debt levels, online sales levels and trends, average ticket size, the mix of products and services offered for sale in our physical stores and online, credit market changes and constraints, product availability, competitive initiatives of competitors (including pricing actions and promotional activities of competitors), strategic and business decisions of our vendors (including actions that could impact product margin or supply), the success of new product launches, the impact of pricing investments and promotional activity, weather, natural or man-made disasters, attacks on our data systems, the company’s ability to react to a disaster recovery situation, changes in law or regulations, changes in tax rates, changes in taxable income in each jurisdiction, tax audit developments and resolution of other discrete tax matters, foreign currency fluctuation, availability of suitable real estate locations, the company’s ability to manage its property portfolio, the impact of labor markets, the availability of qualified labor pools, the company’s ability to retain qualified employees, failure to achieve anticipated expense and cost reductions from operational and restructuring changes, disruptions in our supply chain, the costs of procuring goods the company sells, failure to achieve anticipated revenue and profitability increases from operational and restructuring changes (including investments in our multi-channel capabilities), failure to accurately predict the duration over which we will incur costs, acquisitions and development of new businesses, divestitures of existing businesses, failure to complete or achieve anticipated benefits of announced transactions, integration challenges relating to new ventures, and our ability to protect information relating to our employees and customers. A further list and description of these risks, uncertainties and other matters can be found in the company’s annual report and other reports filed from time to time with the Securities and Exchange Commission (“SEC”), including, but not limited to, Best Buy’s Report on Form 10-K filed with the SEC on March 28, 2014. Best Buy cautions that the foregoing list of important factors is not complete, and any forward-looking statements speak only as of the date they are made, and Best Buy assumes no obligation to update any forward-looking statement that it may make.
Page 7 of 16
Investor Contact: Mollie O’Brien, Investor Relations (612) 291-7735 or [email protected] Media Contact: Amy von Walter, Public Relations (612) 291-4490 or [email protected]
(1) Best Buy’s comparable sales is comprised of revenue at stores, websites and call centers operating for at least 14 full months, as well as revenue related to certain other comparable sales channels. The portion of the calculation of comparable store sales attributable to the International segment excludes the effect of fluctuations in foreign currency exchange rates. Comparable online sales are included in the comparable sales calculation. (2) In April of 2014, Best Buy began offering mobile carrier installment billing plans to its Domestic customers in addition to two-year contract plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As the mix of installment billing plans increases, there is an associated increase in revenue and cost of goods sold, and a decrease in gross profit rate, with gross profit dollars relatively unaffected. (3) Please see table titled “Reconciliation of Non-GAAP Financial Measures” at the back of this release.
Page 12 of 16
BEST BUY CO., INC. REVENUE CATEGORY SUMMARY
(Unaudited and subject to reclassification)
Excluding the estimated benefit of mobile phone installment billing
1
Revenue Mix Summary
Comparable Store Sales
Three Months Ended
Three Months Ended
Domestic Segment Jan 31, 2015
Feb 1, 2014
Jan 31, 2015
Feb 1, 2014
Consumer Electronics 33% 32% 10.7% (5.9%)
Computing and Mobile Phones 45% 46% (2.1%) 2.9%
Entertainment 11% 11% (1.8%) (5.6%)
Appliances 6% 5% 7.0% 17.1%
Services2 4% 5% (11.4%) (9.2%)
Other 1% 1% n/a n/a
Total 100% 100% 2.0% (1.2%)
Including the estimated benefit of mobile phone installment billing
1
Revenue Mix Summary
Comparable Store Sales
Three Months Ended
Three Months Ended
Domestic Segment Jan 31, 2015
Feb 1, 2014
Jan 31, 2015
Feb 1, 2014
Consumer Electronics 33% 32% 10.7% (5.9%)
Computing and Mobile Phones 45% 46% (0.3%) 2.9%
Entertainment 11% 11% (1.8%) (5.6%)
Appliances 6% 5% 7.0% 17.1%
Services2 4% 5% (11.4%) (9.2%)
Other 1% 1% n/a n/a
Total 100% 100% 2.8% (1.2%)
Excluding revenue from Five Star in China
3
Revenue Mix Summary Comparable Store Sales
Three Months Ended Three Months Ended
International Segment3 Jan 31, 2015 Feb 1, 2014 Jan 31, 2015 Feb 1, 2014
Consumer Electronics 33% 32% (0.9%) (8.8%)
Computing and Mobile Phones 45% 46% (4.6%) 2.1%
Entertainment 11% 13% (14.3%) 0.6%
Appliances 5% 4% 1.9% (1.5%)
Services2 5% 5% (3.4%) (0.7%)
Other 1% <1% n/a n/a
Total 100% 100% (4.0%) (2.0%)
(1) In April of 2014, Best Buy began offering mobile carrier installment billing plans to its Domestic customers in addition to two-year contract plans. While the two types of contracts have broadly similar overall economics, installment billing plans typically generate higher revenues due to higher proceeds for devices and higher cost of sales due to lower device subsidies. As the mix of installment billing plans increases, there is an associated increase in revenue and cost of goods sold, and a decrease in gross profit rate, with gross profit dollars relatively unaffected.
(2) The "Services" revenue category consists primarily of service contracts, extended warranties, computer related services, product repair and delivery and installation for home theater, mobile audio and appliances. (3) As announced on December 4, 2014, the company has entered into a definitive agreement for the sale of its Five Star business in China. As a result of this agreement, the results below exclude Five Star revenue for both the current and prior year.
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BEST BUY CO., INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES CONTINUING OPERATIONS ($ in millions, except per share amounts) (Unaudited and subject to reclassification)
The following information provides reconciliations of non-GAAP financial measures from continuing operations to the most comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The company has provided non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in the accompanying news release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the news release. The non-GAAP financial measures in the accompanying news release may differ from similar measures used by other companies. The following tables reconcile gross profit, SG&A, operating income, net earnings and diluted earnings per share for the periods presented for continuing operations (GAAP financial measures) to non-GAAP gross profit, non-GAAP SG&A, non-GAAP operating income, non-GAAP net earnings and non-GAAP diluted earnings per share for continuing operations (non-GAAP financial measures) for the periods presented.
Per share impact of gain on investments, net (0.02)
(0.04)
Per share impact of income tax effect of Best Buy Europe sale
2
0.00
0.05
Per share impact of income tax effect of Europe legal entity reorganization
4
(1.00)
0.00
Non-GAAP diluted EPS $2.60
$2.07
(1) Represents interim period tax reporting impact of LCD settlements reached in the second quarter of fiscal 2014. (2) Tax impact of Best Buy Europe sale and resulting required tax allocation between continuing and discontinued operations. (3) Represents LCD settlements reached in the second quarter of fiscal 2014. Amounts for the twelve months ended January 31, 2015 exclude the impact of $44 million of pre-tax net proceeds from LCD settlements reached in the first quarter of fiscal 2014, as we did not include LCD settlements prior to the material settlements reached in the second quarter of fiscal 2014.
(4) Represents the acceleration of a non-cash tax benefit of $353 million as a result of reorganizing certain European legal entities to simplify our overall structure in the first quarter of fiscal 2015.
Page 16 of 16
BEST BUY CO., INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES ($ in millions)
(Unaudited and subject to reclassification)
The following information provides a reconciliation of a non-GAAP financial measure to the most comparable financial measure calculated and presented in accordance with GAAP. The company has provided the non-GAAP financial measure, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measure that is calculated and presented in accordance with GAAP. Such non-GAAP financial measure should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measure. The non-GAAP financial measure in the accompanying news release may differ from similar measures used by other companies. The following table includes the calculation of Non-GAAP ROIC for total operations, which includes both continuing and discontinued operations (non-GAAP financial measures), along with a reconciliation to the calculation of return on total assets ("ROA") (GAAP financial measure) for the periods presented.
Calculation of Return on Invested Capital1
Jan. 31, 20152
Feb. 1, 2014
2
Net Operating Profit After Taxes (NOPAT) Operating income - continuing operations
$ 1,450
$ 1,144 Operating loss - discontinued operations
(19)
(210)
Total operating income
1,431
934 Add: Operating lease interest
3
457
517
Add: Investment income
24
33 Less: Net earnings attributable to noncontrolling interest (NCI)
(2)
9
Less: Income taxes4
(735)
(629)
NOPAT
$ 1,175
$ 864 Add: Restructuring charges and impairments
5
67
256
Add: NCI impact of restructuring charges and impairments
-
(38)
Non-GAAP NOPAT
$ 1,242
$ 1,082
Average Invested Capital Total assets
$ 14,838
$ 14,174 Less: Excess cash
6
(2,922)
(1,564)
Add: Capitalized operating lease obligations7
7,308
8,272
Total liabilities
(10,207)
(10,453) Exclude: Debt
8
1,635
1,674
Less: Noncontrolling interests
(4)
(160)
Average invested capital
$ 10,648
$ 11,943
Non-GAAP return on invested capital (ROIC)
11.7%
9.1%
Calculation of Return on Assets1
Jan. 31, 20152
Feb. 1, 2014
2
Net earnings (loss) including noncontrolling interests
$ 1,235
$ 523 Total assets
14,838
14,174
Return on assets (ROA)
8.3%
3.7%
(1) The calculations of Return on Invested Capital and Return on Assets use total operations, which includes both continuing and discontinued operations. (2) Income statement accounts represent the activity for the 12 months ended as of each of the balance sheet dates. Balance sheet accounts represent the average account balances for the 4 quarters ended as of each of the balance sheet dates. (3) Operating lease interest represents the add-back to operating income driven by the capitalization of our lease obligations using the multiple of eight times annual rent expense and represents 50 percent of our annual rental expense, which we consider to be appropriate for our lease portfolio. (4) Income taxes are calculated using a blended statutory rate at the enterprise level based on statutory rates from the countries we do business in. (5) Includes all restructuring charges in costs of goods sold and operating expenses, goodwill and tradename impairments and non-restructuring impairments. (6) Cash and cash equivalents and short-term investments are capped at the greater of 1% of revenue or actual amounts on hand. The cash and cash equivalents and short-term investments in excess of the cap are subtracted from our calculation of average invested capital to show their exclusion from total assets. (7) The multiple of eight times annual rental expense in the calculation of our capitalized operating lease obligations is the multiple used for the retail sector by one of the nationally recognized credit rating agencies that rates our creditworthiness, and we consider it to be an appropriate multiple for our lease portfolio. (8) Debt includes short-term debt, current portion of long-term debt and long-term debt and is added back to our calculation of average invested capital to show its exclusion from total liabilities.